Feliciano v. Reliant Tooling Co., Ltd.

Decision Date26 October 1982
Docket NumberNo. 82-1176,82-1176
Citation691 F.2d 653
PartiesAida FELICIANO, v. RELIANT TOOLING COMPANY, LTD. and Union Special Corporation, Sun Alliance and London Insurance, Limited, Appellants.
CourtU.S. Court of Appeals — Third Circuit

Mary L. B. Betts (argued), Shelia H. Marshall, Joseph L. Seiler, III, LeBoeuf, Lamb, Leiby & MacRae, New York City, Jeremy D. Mishkin, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for appellants.

Fred T. Magaziner (argued), Norbert F. Bergholtz, Philip M. Kruger, Dechert, Price & Rhoads, Philadelphia, Pa., for appellee.

Before GIBBONS, WEIS and SLOVITER, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

A default judgment was entered against an English insurance company for failure to answer interrogatories directed to it as garnishee and served on it in the United Kingdom. The carrier later submitted to the jurisdiction of the district court to ask that the judgment be opened, but the motion was denied. We conclude that the company's reasonable doubt about the personal jurisdiction of the American court demonstrates a lack of bad faith on its part. That factor, combined with a facially meritorious defense and a lack of prejudice to the judgment creditor, counsel that the default be opened. Accordingly, we vacate the judgment of the district court and remand for proceedings on the merits.

In 1978, plaintiff Feliciano a citizen of Costa Rica brought suit in the Eastern District of Pennsylvania against Union Special Corporation, incorporated in Delaware, and Reliant Tooling Company, Ltd., incorporated in the United Kingdom. Plaintiff sought damages for personal injury sustained in Pennsylvania allegedly caused by a defective machine that was manufactured by Reliant and sold by Union. Feliciano's direct claim against Reliant was dismissed for lack of diversity. However, Union pressed a third-party claim against Reliant, serving it, as had Feliciano, by registered mail through the Secretary of the Commonwealth of Pennsylvania. Reliant did not appear in the litigation or participate in any way.

After trial began, plaintiff and Union settled her claim for $250,000. A few days later, the district court, on Union's motion, entered a default judgment for $250,000 on the cross-claim against Reliant. The same day, Union 1 filed a praecipe for a writ of execution directed against Reliant as defendant and against its liability insurer, Sun Alliance and London Insurance, Ltd., as garnishee. The writ and interrogatories were served upon Sun in England, pursuant to the terms of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, done at the Hague, November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638.

Within a week of service, Sun's solicitor wrote to counsel for Union and sent a copy to the clerk of the district court. In the letter, the solicitor said:

"(w)e are puzzled by the form of proceedings. It is unknown in this country for Garnishee proceedings to be taken against an Insurer where judgment has been obtained against an Insured.

In proceedings in the English Courts, no person can be required to answer interrogatories without an order of the Court. The documents do not recite any such order.

Our clients do not intend to submit to the jurisdiction of the United States District Court for the Eastern District of Pennsylvania. They do not, however, wish to be discourteous and we are therefore instructed to outline briefly the reasons why they are under no obligation to indemnify the Reliant Tooling Co. Ltd. and to indicate the answers they would have given, had they filed answers to your interrogatories."

The solicitor listed the answers, stated that claims similar to those of Feliciano were excluded from coverage by the policy terms and asserted that the judgment against Reliant was unenforceable because Reliant had never submitted to the court's jurisdiction.

Union did not respond to the solicitor's letter, but on April 16, 1981, almost two months later, moved for entry of a default judgment against Sun for failure to answer the interrogatories. The motion did not refer in any way to the solicitor's letter. A copy of the motion was mailed to Reliant, but none was served upon Sun. On May 4, 1981, the district court entered judgment in favor of Union against Sun in the amount of $250,000, "together with counsel fees, costs and interest."

Following entry of the judgment, Union obtained writs of execution and garnishment accompanied by interrogatories directed to three subsidiaries of Sun and a company owned wholly by one of the subsidiaries. 2 All of these companies have their principal offices in London, England, but have branch offices in New York and submit annual filings to the Pennsylvania Insurance Department. After additional extensive interrogatories were served upon the companies, Sun decided to appear in the district court.

In January 1982, Sun asked the court to set aside the May 4, 1981 judgment, to accept answers to the garnishment interrogatories originally served upon Sun, and to grant judgment in its favor on the coverage question. In the alternative, the carrier asked that the judgment against Reliant be set aside and that Sun be permitted to defend against Union's cross-claim. As part of its motion, Sun recited the history of the litigation and attached copies of an English barrister's opinion on the coverage issue as well as the letter of the company solicitor to Union's counsel. Sun said further that if the coverage issue were decided adversely to it, the carrier would agree to pay without the necessity of any foreign proceedings. After briefing by both parties, the district court denied Sun's motion without findings or opinion.

On appeal, Sun contends that the district court abused its discretion in refusing to set aside the default judgment and particularly in failing to recognize the interests of international comity. Union argues that, having chosen to allow the default to be taken against it, Sun should not be heard to complain at this point.

The Federal Rules of Civil Procedure do not set out detailed directions for execution on civil judgments. Instead, Rule 69(a) provides that proceedings in aid of execution follow state practice. In this case, those procedures are found in the Pennsylvania Rules of Civil Procedure 3101-3149.

The Pennsylvania rules provide that after a writ of execution is issued, the judgment holder may serve interrogatories on the garnishee respecting property possessed by him but owned by the judgment debtor. Pa.R.Civ.P. 3144. "The procedure between the plaintiff and garnishee shall, as far as practicable, be the same as though the interrogatories were a complaint and the answer of the garnishee were an answer in assumpsit." Pa.R.Civ.P. 3145. If the garnishee fails to file an answer to the interrogatories within 20 days, judgment may be entered against him in the same amount as the original judgment against the defendant. Pa.R.Civ.P. 3146. 3 It was this state procedure which Union followed in proceeding against Sun.

As noted earlier, service of the garnishment documents was made on Sun in accordance with the provisions of the Hague Convention. Because Sun has raised no objection to the method of service, we may take it as being proper. Sun has also voluntarily submitted to the jurisdiction of the district court. Therefore we need not inquire whether that court had the power to enter a valid default judgment on a claim based on an insurance contract entered into in England between two English concerns, neither of which has offices in the United States.

We look then to the matter of the district court's refusal to open the default judgment. Sun's motion was filed under Fed.R.Civ.P. 60(b), which provides for relief from judgments in defined circumstances. Subsection (b)(1) lists as possible grounds, "mistake, inadvertence, surprise or excusable neglect." Subsection (b)(6) refers to "any other reason justifying relief from the operation of the judgment." Relief under (b)(1) requires that the motion be made within one year from the date of the judgment; motions pursuant to (b)(6) need be made only within a reasonable time. Since the parties do not dispute the timeliness of the motion and we find that the motion was filed within both a reasonable time and the one-year period, it is not necessary to choose between the two subsections in reaching our decision. See 7 J. Moore & J. Lucas, Moore's Federal Practice P 60.27(1) at 346 (2nd ed. 1982).

Defaults are also treated in Rule 55(c), which authorizes a court to "set aside the entry of default" for "good cause shown". There is a distinction between a default standing alone and a default judgment. If a judgment by default has been entered, it may be set aside "in accordance with Rule 60(b)." Id. Less substantial grounds may be adequate for setting aside a default than would be required for opening a judgment. Thus, "(a)ny of the reasons sufficient to justify the vacation of a default judgment under Rule 60(b) normally will justify relief from a default entry and in various situations a default entry may be set aside for reasons that would not be enough to open a default judgment." 10 C. Wright & A. Miller, Federal Practice and Procedure § 2696 at 334 (1973).

In Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951), we said that in passing upon default judgments Rule 60(b) should be "given a liberal construction.... Any doubt should be resolved in favor of the petition to set aside the judgment so that cases may be decided on their merits." We followed that admonition in Livingston Powdered Metals, Inc. v. N.L.R.B., 669 F.2d 133 (3d Cir. 1982), a case involving the entry of a de facto default judgment by the NLRB against an employer. We also quoted the Tozer standard in Medunic v. Lederer, 533 F.2d 891, 893-94 (3d Cir. 1976), although there a default,...

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